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Ewen Fleming

By Ewen Fleming, Partner, Financial Services Advisory (Banking), Grant Thornton UK LLP.

What can banks and building societies do to deliver high savings rates while still meeting their conduct obligations, and is it fair to accuse them of giving customers a raw deal?


Savers have been dealt another blow as inflation has dropped to record lows of 0.3% in early 2015.[1] Falling prices of food and fuel have been the main drivers, although we have also seen the Retail Prices Index (RPI) dropping to 1.1%, adding to the downward pressure on inflation. This is generally considered good news for consumers and the value of their money; however it will likely translate into further pressure on savers who are generating low returns from their nest eggs.

In January the FCA came out saying that savers are “getting a raw deal” and have been let down by the High Street Banks.

In particular, the FCA found around £160bn of the funds held in easy access savings accounts earned an interest rate equal to or lower than the Bank of England base rate of 0.5% in 2013, yet consumers often find it difficult to know what rate they are on, or are put off switching by the expected inconvenience. 80% of easy access accounts have not been switched in the last three years.[2]

In the context of ongoing reputational issues faced by financial institutions, brought on by high profile cases of misconduct and unethical behaviour; the public may find it is easy to pin low savings rates as the fault of the banks. But are they being unfairly criticised?Is it within their gift to increase rates given the economy they are operating in and the regulatory obligations they are expected to adhere to?

Banks often come under fire for driving profit and the public is quick to villainise banks for appearing to rake in profits while the rest of the economy struggles to recover[3]. In reality a strong and stable financial sector benefits the wider economy in a number of ways: financial institutions need to be able to attract investors and then reward those shareholders for their investment and the government needs a profitable financial sector for a healthy economy.

Banks making sustainable profits while serving their customers with the advice and products they need is a good thing although that balance is becoming harder to achieve.

A Challenging Economic and Regulatory Environment

The official bank rate has been at an unprecedented low of 0.5% since 2009.Consumer confidence is only slowly improving [4] and the improved employment figures have not yet translated into economic activity. Some of this be could the impact of increasing life expectancy and therefore retirement periods, forcing consumers to spend less now and save more to cushion them in later years [5]

The Government’s Funding for Lending Scheme has provided lenders with a cheap source of funding making them less reliant on savings deposits and enabling them to slash savings rates.

The FCA’ s Customer Conduct Agenda compels financial institutions to keep their  customer’s interests front of mind. They are expected to treat customers fairly, often demonstrated through helping customers understand the benefits and risks of products, providing clear information and good service. Government has added pressure by urging banks to keep the “last branch in town” open providing access to banking in rural communities.[6]

This makes for a challenging economic and regulatory environment for banks to operate in, whilst remaining profitable.

The Regulator would like to see firms focus on core banking activities and move away from complex securitisation models. The impending ring-fencing deadline will mean that retail banks will be even more dependent on traditional banking activities as their income will no longer be subsidised by their investment banking arm.

A retail bank or building society’s chief source of income is Net Interest Income (NII). In its most basic form; the differential between the rate earned on loans and the rate paid on savings. If the official rate remains at 0.5%; what levers do these organisations have available to them to improve margins and profits, improve savings rates and maintain their obligations to the customer?

Ewen Fleming

Ewen Fleming

Traditional Tools Are No Longer Effective

Differential Pricing per delivery channel

Until recently, banks were able to differentiate pricing based on the delivery channel and customers accepted the value distinction between channels. Customers who demand the security of face-to-face interactions have traditionally accepted the trade-off of earning less on savings products sold and serviced through the branch network while banks have heavily marketed “online only” deals to entice customers to purchase products via the internet.

An omni-channel world has now decoupled products and channels. A multi-tier pricing system will only serve to alienate customers who are now comfortable using more than one channel and will likely discover that they are able to get the same product at a better price had they gone online instead of walking into a branch.

Bonus rates

Although the FCA has frowned on the use of bonus or teaser rates – attractive,but temporary rates used to entice savers – they failed to ban the practice altogether. However “large back books that may lead banks to act against their existing customers” was cited as one of the seven forward looking areas of focus in the FCA 2014 Risk Outlook Statement and we expect this to be an area of high priority to the Regulator.[7]

We have already seen the Royal Bank of Scotland curtail their use of teaser rates offered with savings and credit card products. CEO Ross McEwan, is quoted as saying “You would have thought you would get a better rate for staying, rather than a worse rate for staying and a better rate for going,”[8] The removal of teaser rates and front and back book differential pricing changes the economics considerably.

Cross sales

The easiest way to generate new business and income is to offer existing customers more products. Repeat customers tend to spend more, cost less to acquire and are more loyal to the brand. Every bank competes to own as much of their customers’ wallet as possible.

The PPI mis-selling scandal has cost the industry millions and subsequent remediation and fines on PPI and other cross sold products has made firms rightfully wary of pushing products on customers who don’t understand what they are.[9] Cross selling and bundling products makes it difficult for customers to compare across competitors and allows banks to mask costs and justify lower rates of returns.

Calls for greater transparency and accountability in this area mean that financial service providers are now required to evidence that products have been sold fairly and that the product is deemed suitable for the customer’s need. This is known as an advised sales process and has made selling more complex and costly to provide and to evidence they have delivered this compliantly.

Lend more for more

The ability to increase lending rates and fund this lending with cheap savings is the most powerful lever for banks and building societies to widen the NII margin. When demand for loans is strong, backed by a growing economy, firms typically acquire new savings by offering higher rates. However many of the high street brands are finding it difficult to lend money out. Within the existing regulatory framework banks are incentivised to lend to low risk borrowers and there just aren’t as many of them out there as the banks would like to hear from.

Metro Bank is testament to that and in its financial statements to 31 December 2014 the bank reported deposits of £2,867 million compared to total loans of £1,597 million.[10] Despite the imbalance,Metro Bank deposits are still growing marginally faster than loans and this is despite a focus on lending to business customers who now make up almost half of its total lending.

Where to from here?

As discussed, banks and building societies are not in a position to easily widen the NII margin using traditional levers.

Given NII margins are being squeezed, where can these organisations compensate for the short-fall while imbibing the values encouraged by the FCA?[11]

The fee debate

The debate continues about whether or not banks should charge fees on current accounts. A fee structure will help create transparency and facilitate competition as customers would be able to compare products like for like. It seems inevitable that UK banks will eventually follow many of their international peers and introduce a fee structure for basic transactional accounts.

However the introduction of fees will cause an upset and given the current public opinion, manymay choose to tread cautiously in this area.

Change the business model

The reality that a low interest rate environment might be here to stay,[12] means that financial service providers need to abandon short term fixes to keep them afloat and rather, commit to fundamentally changing their business model.

Disruptive and innovative change is required.

One such example is committing and wholeheartedly embracing the digital agenda that so many organisations have been toying with over the last decade or more.

A digital bank; one that moves beyond digital channels and strives for a digital, integrated core will be able to realise long term cost efficiencies that will translate into operational savings and can eventually have a positive impact on rates; all the while keeping the customer at the heart of the business.

So perhaps the debate rightfully moves to cost:income ratios once more, but focused on slashing costs without sacrificing levels of service or operations. The tricky balance for organisations will be to simultaneously keep customers’ welfare at the heart of their operations, offera great customer experience and increase returns for their investors.

Many banks are standing on the edge of the proverbial “burning platform”; there has been enough debate andthe survivors will be the ones who make the decision to jump into and embrace the new world order. The ones who jump soonest and execute with excellence will be the ones that prosper.

[1]Office for national Statistics–january-2015.html

[2]  Consumers with cash savings need better information and easier switching.



[5]Andy Haldane; Bank of England Chief Economist.


[7]FCA 2014 Risk Outlook Statement.

[8] Monday interview: Ross McEwan, Royal Bank of Scotland.







What should I invest and How do I invest



What should I invest and How do I invest 1

By Imogen Clarke

With all the uncertainty that has arisen from 2020, with lockdown threatening businesses and the warning of a second wave, the topic of investments has taken on new meaning. Nowadays, more people are concerned with what makes for a good investment, or, if you’re a novice, how to best invest.

For instance, you might be unsure about the reliability of the company you’re looking to invest in, as well as the long-term prospects of your investment.

If you are unsure of your investments, then it is best to seek advice from financial experts like The Fry Group, who deal with tax, wealth and estate planning. They will see that you have a strong financial plan in place to help meet your objectives. They will develop a strategy that is built around your needs and asses any risks that could hinder your plans.

There are some things you’ll need to consider for your strategy; for instance, are you looking to make investments that are more of a risk and will take longer to come to fruition? Or, alternatively, are you wanting a faster approach that will result in a steady income? Whether or not you decide to play it safe all depends on your current financial situation and whether you have the means to take more of a risk. Do you have any other debts that take precedence over your future plans? Is your investment strategy realistic?

With the aid of a specialist – or investment manager – you can design an investment concept that works for you and your goals, and start to build a regular income from your investments. There are four main areas when it comes to assets (groups of investments) that you can consider:

  • Equities
  • Bonds
  • Alternatives
  • Cash

Your investment manager will test the risks associated with your investment, and if it proves to be a positive investment choice, then you will be able to invest more over time.

So, how do you decide where to invest?

According to The Fry Group, ESG investing (Environmental, Social and Governance) is a good option for investors looking to support businesses that meet their similar ethics.

The main areas of ESG investing include:

  • Environmental challenges (climate change, pollution, etc)
  • Social issues (human rights, labour standards, child labour, etc)
  • Governance considerations relating to company management

According to The Fry Group, “Many investors choose to consider ESG investing in order to ensure any investment decisions reflect personal beliefs and values. As a result, they choose to support companies who are making informed, responsible decisions which take into account their wider societal and global impact. In this way investors can achieve peace of mind that their investments are creating a positive effect.”

ESG investing is also more relevant now than ever, as more businesses are looking to present themselves as an environmentally conscious corporation that recognises the values of their consumers.

As The Fry Group puts it, “In the past, ESG investing has been seen as a niche investment approach, for a relatively small number of people with specific requirements. This has changed significantly in recent years, with a growing awareness of environmental issues such as climate change and an increasing understanding of social issues and human rights. As a result, many people are increasingly interested in reflecting their opinions and lifestyle choices through the way they invest.”

So, if you want your investments to pave the way for your personal values and reflect your own morals, then this is the route to go down. But how does it all work?

There are four areas of ESG investing:

  • Responsible ownership and engagement: when companies are encouraged to make necessary improvements.
  • Avoidance or negative screening: whereby businesses are ‘graded’ based on how ethical their business practices are and are avoided altogether if their methods are not approved.
  • Positive screening strategies:when companies meet the ESG goals and are approved for investments.
  • Impact investment strategies: the purpose of this is to use investment capital for positive social results such as renewable energy.

You will need to take into account your own personal objectives as well as the objectives that meet the ESG investment criteria. And, in terms of financial performance, ESG investing can be hugely beneficial. Those who opt for ESG investing perform a more in-depth analysis into long-term and future trends that affect industries, meaning that they are better prepared for changes in consumer values when they arise. And, with all the unpredictability that this year has offered us so far, isn’t it better to do the research and have all angles covered?

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Investment Roundtable: Live with Jim Bianco



With Q4’s macro picture still looking grim amid the return of exponential coronavirus waves in Europe and the U.S. and Europe, we speak with veteran macroanalysis strategist Jim Bianco, CMT for a data-driven deep-dive into the global economy and financial markets on Sept. 7th at 12pm EDT.

Sign up for this exclusive webinar now

Key themes:

  • Learn from Jim’s unique combination of quantitative and qualitative analytics which provide an objective view on Rates, Currencies and Commodities to make smart investment decisions
  • Identify important intermarket relationships he is watching with respect to Global Equities
  • Roadmap a global outlook for 2021 in view of socio-political backdrop giving viewers key takeaways and intermarket perspectives on global investing.

Sign up for this exclusive webinar now

Jim’s robust technical analysis includes a broad look at trends and themes in the markets, market internals, positioning such as the Commitment of Traders (COT), sentiment, and fund flows. Don’t miss out on this exclusive session from one of the investment world’s most insightful thought leaders.

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Equity markets react to a rise in Covid-19 cases, uncertain Brexit talks and the upcoming US election



Equity markets react to a rise in Covid-19 cases, uncertain Brexit talks and the upcoming US election 2

By Rupert Thompson, Chief Investment Officer at Kingswood

Equity markets had another choppy week, falling for most of it before recovering some of their losses on Friday and posting further gains this morning.

At their low point last week, global equities were down some 7% from their high in early September. US equities were down close to 10%, hurt by the large weighting to the tech giants which at least initially led the market decline.

The market correction is nothing out of the ordinary with 5-10% declines surprisingly common. Indeed, a set-back was arguably overdue given the size and speed of the market rebound from the low in March.  As to the cause for the latest weakness, it is all too obvious – namely the second wave of infections being seen across the UK and much of Europe and the local lockdowns being imposed as a result.

These will inevitably take their toll on the economic recovery which was always set to slow significantly following an initial strong bounce. Indeed, business confidence fell back in September both here and in Europe with the declines led by the consumer-facing service sector. A further drop looks inevitable in October – fuelled no doubt in the UK by the prospect that the latest restrictions could be in place for as long as six months.

The job support package announced by Rishi Sunak did little to boost confidence. Its aim is to limit the surge in unemployment triggered by the end of the furlough scheme in October. However, the scheme is much less generous than the one it replaces as the government doesn’t want to continue subsidising jobs which are no longer viable longer term.  A rise in the unemployment rate to 8% or so later this year still looks quite likely.

Aside from Covid, for the UK at least, there is of course another major source of uncertainty – namely Brexit. Another round of trade talks start this week and we are rapidly reaching crunch time with a deal needing to be largely finalised by the end of October.

Whether we end up with one or not is still far from clear. That said, the prospects for a deal maybe look rather better than they did a couple of weeks ago when the Government was busy tearing up parts of the Withdrawal Agreement. With significant Covid restrictions quite probably still in place in the new year and the Government already under attack for incompetence, it may not wish to take the flack for inflicting yet more chaos onto the economy.

Markets remain unimpressed. UK equities underperformed their global counterparts by a further 2.7% last week, bringing the cumulative underperformance to an impressive 24% so far this year. The UK weighting in the global equity index has now shrunk to all of 4.0%.

It is not only the UK which faces a few weeks of uncertainty. The US elections are on 3 November. We also have the first of three Presidential debates this Tuesday. Joe Biden’s lead looks far from unassailable, a close result could be contentious and control of Congress is also up for grabs.

All said and done, equity markets look set for a choppy few weeks. Further out, however, we remain more positive – not least because the focus should hopefully switch from the roll-out of new lockdowns to the roll-out of a vaccine.

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